Half of Europe wants a web tax, but it faces a difficult compromise

While waiting for a global agreement, the European Commission has put forward the first web tax proposal: a 3 percent tax on income — not profits — of tech titans including Google, Amazon, Uber and Facebook.

Member countries’ heads of state and of government met Thursday and discussed the proposal, but the EU is divided. A group of smaller countries whose fortunes lie on competitive fiscal policies — including the Netherlands, Luxembourg, Ireland, Malta and Cyprus — is holding back, while bigger countries including France, Italy, Germany and Spain are pushing for new regulation.

It doesn’t much matter: the new proposal is likely to be temporary anyway, holding the line only until the G20 reaches a comprehensive agreement. But that doesn’t seem close. And since EU institutions can pass new fiscal decisions only by unanimous vote, the plan will likely fall back on a strong co-operation agreement (which only needs nine countries to begin with).

The proposal put forward by Bruxelles offices would not apply to all tech companies, but only to those with a higher yearly turnover than €750 million, with at least €50 million coming from the EU. Every year, it would generate at least €5 billion in tax revenue for all European countries.

The EU thought of two different scenarios to decide on which country would levy the tax. Under the first one, the tax would apply to all income made in a country, “even if the company is not physically present in it.”

A digital platform would count as having a taxable “digital presence” or a stable virtual organization in a member country if it meets one of three criteria: it exceeds €7 million in yearly earnings in the country, it has over 100,000 users in the financial year or it has signed over 3,000 contracts with other companies in the financial year. The tax would be paid in the country where consumers use the service.

The second scenario meets Italy’s and many other countries’ demand to start levying a “temporary tax” while waiting for the G20 to reach an agreement. Some call it a “micro VAT”: it would be a tax on all activities where users create value — such as digital advertising, or mediation between users to sell goods or services. According to EU Economic Affairs Commissioner Pierre Moscovici, this would not hit all digital companies, but “between 120 and 150 groups.”